Livestock Analysis (VIP) -- January 30, 2014

02:55PM Jan 30, 2014
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Price action: Lean hog futures closed fractionally mixed and near their highs for the day. The February and April contracts closed 15 to 17 1/2 cents lower while the May through October contracts closed up 2 to 22 1/2 cents.

Fundamental analysis: Lean hog futures opened under pressure on profit taking following Wednesday's gains, which featured a gap-higher open. Traders were slightly disappointed in this morning's wholesale pork trade, which saw prices edge back slightly. But hog supplies remain constrained due to arctic temperatures and difficult road conditions, which is limiting supplies available to the market. Cash hogs firmed as a result. Today's estimated slaughter totals only 385,000 head, which is down sharply from last week's 434,000 and down from last year's 420,000.

Technical analysis: February lean hog futures closed lower but today's action is viewed positively by market technicians. The early setback probed the gap area left on Wednesday's open. Futures bounced after uncovering buying support rather than follow-through selling as prices entered the gap area. This makes the gap area from $85.35 to $85.90 solid support. Resistance rests at $87.00.

Hedgers: Carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.


Live cattle

Price action: Live cattle futures saw a choppy day of trade and futures ended steady to 60 cents higher, which was generally a high-range close.

Fundamental analysis: Traders fully expect cash cattle trade to take place below last week's record-setting prices -- the question is, how much lower? Nearby futures are already $5 below the low end of last week's cash action, which encouraged some corrective short-covering today.

A few light sales took place in Nebraska at $146 today, which was down $4 from the bulk of last week's action in the region. But active cash trade has yet to get underway. Higher showlist estimates along with a steep decline in the boxed beef market this week is thought to have eroded packers' bargaining power.

The market is also working to ready positions for month-end, week-end and the post-market-close Cattle Inventory report tomorrow. (See "Evening Report" for more.)

Technical analysis: February live cattle spent the day within the upper half of yesterday's trading range. The January high of $144.55 still stands as tough resistance, while initial support is at yesterday's low of $141.40.


Feeder Cattle

Price action: January feeder cattle expired 12 1/2 cents lower at $171.67 1/2 today. The rest of the market traded in a narrow range and ended 32 1/2 to 52 1/2 cents lower for the day.

Fundamental analysis: Strength in the corn market along with strong gains in the U.S. dollar index weighed on the feeder cattle market today. Pressure on the new front-month March contract should remain limited by the nearly $3 discount it holds to the cash index.

Technical analysis: March feeder cattle futures remain well within the market's consolidated trading range, which extends from the 2014 low of $166.40 to this year's high of $170.67 1/2.

Hedgers: Fed cattle producers are long (bought) April $136.00 put options at $1.325 covering remaining 1st-qtr. and 50% of 2nd-qtr. marketings and are short (sold) the same number of April $144.00 call options at $1.525.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.